Alcatel Optronics (Nasdaq: ALAO; Paris: CGO.PA) this morning announced an agreement to acquire Kymata Ltd., a Scottish startup developing arrayed waveguide gratings (AWGs), for Alcatel stock worth $119 million (see Alcatel to Acquire Kymata ).

The deal was received positively on the Paris bourse, where Alcatel’s Class O shares rose 1.95 percent, to €10.45 (US$9.14) in the first couple of hours of trading, beating the CAC 40 index, which rose 0.71 percent over the same period. Alcatel Class A shares were also up 0.90 percent on Friday’s close, at €19.07 ($16.69).

As reported in Light Reading (see Kymata: For Sale?), rumors of a possible acquisition of Kymata by Alcatel have been doing the rounds for several months, during which time the putative price has dropped from several hundred million dollars to a range of £100 to £150 million ($140-210 million) in the past couple of weeks.

The actual value of the deal is even lower. Alcatel is handing over 9 million Class O shares and 2.2 million Class A shares, which this morning were worth a total of €136 million ($119 million). The transaction is subject to conditions and is expected to close "by the end of August."

Last Tuesday, Kymata appeared to be paving the way for a sale at that sort of price when it won approval for a change in the company’s articles of association in an extraordinary general meeting of its shareholders (see What's Cooking at Kymata ?). The changes ensured that Kymata's current employees would get something out of the deal even if the price was low. Former employees -- notably former CEO Brendan Hyland -- and some private shareholders appeared to lose out in a big way.

Alcatel is widely regarded as a leader in some aspects of optoelectronics, so its acquisition of Kymata is significant. It suggests that the company may have some decent AWG technology and that AWGs in general have a promising future, contrary to some of the comments on Light Reading's message boards following our previous story (see "Preparing to Party at Kymata" for instance). On the other hand, Alcatel has had a mixed record of success with previous acquisitions (see our interview with Bernard Daines, for instance).

In Alcatel Optronics’ press release, CEO Jean-Christophe Giroux says Kymata is a “perfect match” with his company, and that the acquisition “will allow us to gain at least two years in time-to-market for planar products.” It’s a “crucial step” towards Alcatel’s goal of becoming a major player in the integration of active and passive optical components. Alcatel's strength is in active components, while Kymata's AWGs are passive.

Kymata last week said it was having considerable success in winning new business and ramping up its revenues. It will be interesting to see whether its acquisition will frighten off some of its customers, many of which are in direct competition with Alcatel.

— Peter Heywood, Founding Editor, Light Reading
http://www.lightreading.com